"If I can prevent one person from getting involved with
venture capitalists, then I have done a good deed," says Raj
Goel. "The fact is, entrepreneurs and VCs don't
mix."

If, at the tender age of 30, Raj Goel sounds like he's a
scarred veteran of the entrepreneurial battlefield, that's
because he is. Goel has been in the IT consulting business since he
was 16 years old, and he formally established his current company,
New York City-based Brainlink International, in 1994. "We were
here long before the dotcoms," he says.

As the IT world morphed during the late 1990s, so, too, did
Brainlink. It wasn't surprising, then, that in late 1999, when
the company was positioning itself as a "broadband provider of
DSL services," that Goel, like everyone else with the word
"broadband" in their corporate curriculum vitae, started
to hunt around for institutional venture capital so he could
capture what was certain to be an expanding market.

What makes Goel's tale such an instructive one for
capital-hungry entrepreneurs is not that he succeeded or failed-or
even how he succeeded or failed-but, more important, why he decided
to stop the process before it was completed. Goel's gut told
him he wasn't going to succeed in his quest and that even if he
did, the time and energy he would have to spend on it before he
found success would far exceed the benefits he would ultimately
derive from institutional venture capital.

Stop Signs

What did Goel experience that made him put an end to the search,
and how can those experiences be used as signposts to warn other
entrepreneurs to turn back from the road they're on? Remember,
it's not that institutional venture capital is bad per se, but
more accurately, the process of acquiring it may not be worth the
effort for certain businesses. Watch out for these signs, and be
prepared to turn back.

1. Constant requests for changes to
your business model. When Goel went calling on venture
capitalists, he says, they all had things they wanted him to change
in Brainlink's business model. Changes to your company's
business model need to be given some careful consideration.
Sometimes change can be a good thing. After all, investors'
opinions should be viewed as market forces capable of shaping and
changing your company into something that can be financed. You may
also be attracted to change your business model because it appears
to be such an easy thing to do; you simply have to revise certain
parts of the business plan. But it's living with the changes in
daily operations that can be quite challenging.

Therefore, if investors are giving you constant requests for
change, you can take it as a good indication that making further
efforts to curry their favor may be a waste of time. The truth is,
investors aren't always right about what needs to be changed
before a business can take off. As Goel says, if the prevailing
thoughts you get from investors are counter to your own, and
you're unwilling to give them what they want, it's a sure
sign that you've made a turn down the wrong path. Pressing on
faster or more furtively doesn't get you back on track any
faster.

2. Control issues. Goel says
another clue that the jig was up was that investors increasingly
came to him seeking more and more control of the company. "One
guy offered me $250,000 for 60 percent of the business-the
nerve!" he says. So for all Goel's efforts, what was
supposed to be a process of shopping around for the best deal-a
time-honored tradition in any realm-was delivering deals that were
growing more and more unattractive to him.

Look the Other
Way:Keep in mind, there are
some unmistakable signs that the environment is ripe to raise
institutional venture capital.
Here are a few:

You get calls back from investors to whom
you sent your plan unsolicited.

When you meet with venture capitalists,
they hold their other telephone calls.

Your competitors are getting
funded.

Public companies in your industry are
praised by securities analysts.

There is a spate of mergers in your
field.

There's a market mechanism at work behind Goel's
experience that entrepreneurs would do well to understand and heed.
Specifically, industries or business segments get priced by venture
capitalists according to the risks they offer. The higher the risk,
the more control the investors want. Accordingly, one way you can
interpret increasing demands for control of the company by
investors is that your business model or segment is either unproven
or generally out of favor, and attempts you make to raise capital
against this prevailing mood may prove fruitless. In Goel's
case, there was a lot of excitement surrounding the DSL market, but
not a lot of proven success. Given the trouble big telecoms have
had with DSL services, it looks like investor skepticism was on
target.

Consider in this light a content-driven Web site that depends on
advertising for revenue. Could the company raise money in
today's investing climate? Perhaps, but investors would want to
own almost all the company because of what are now the known risks
of such a business.

3. The "huh?"
factor. Goel's instincts told him it was time to
fold up the tent and go home when he had to re-educate every
investor he met about the business. Says Goel, "Each
conversation I had was more difficult that the last."

And again, like the control issue, entrepreneurs need to be
aware of what's lurking behind the behavior. Specifically,
venture capitalists are adventurous only to a degree. They are
typically not pioneers, but more accurately financiers of emerging
industries where "emerging" means there is clear evidence
that something big is afoot. Accordingly, if you are continuously
explaining what your business does in the most fundamental, basic
terms to glazed eyes, you may be laboring in a business that has
not yet sufficiently emerged to attract funding from institutional
venture capitalists.

The conventional wisdom suggests that finding funding is the
most difficult task an entrepreneur faces. Keep in mind, though,
that there's a difference between difficult and an unproductive
use of valuable time. Learn from Goel's experiences, and maybe
you can distinguish between the two.